July 2011 Archive for Out to Pasture

So the cattle inventory came out and showed that cow owners continue to liquidate despite record prices and you wonder why? Well, folks, times are tough in Texas. And not just in Texas. Look at the drought monitor and consider just how large an area is not just dry but parched.

By "parched" I mean in that D4 "exceptional drought" category that gets most of Texas, half of Oklahoma and New Mexico and parts of Louisiana, Arizona and Kansas. Toss in the "abnormally dry" yellow areas and you cover states that together account for perhaps a third of the country’s cow herd.

And those cows, the ones that haven’t already gone to meet their packer, are in danger. They need rain. Lots of rain They need it before this fall and things don’t look that good if you trust the long range weather forecasts.

AgWeb’s Greg Vincent reported last week that Plantalytics doesn’t expect much relief in the near future. NOAA’s forecast at promises little relief for much of the area. The government’s forecast for the rest of the growing season isn’t that peachy, either.

So it looks like a lot of what is parched now will be more parched later. You don’t believe parched? You think you understand parched?

I’m in the middle of this deal here in the Texas Panhandle, and I’m here to tell you about parched. A neighbor said he had spent nearly two hours in line in 100 plus degrees waiting to unload cattle at a nearby sale barn. Another friend, one with an official rain gauge on his place, got a stray shower a few days ago and it came exactly one year after the last time his gauge measured as much as an inch.

The wheat I dusted in last September and grazed out this summer had exactly 0.40 inches of moisture from rain and snow in its whole life. We did get under an isolated shower the other day, but with an average evaporation rate this summer of .6 inches per day around here, a shower doesn’t do much. Which is to say the buffalo grass is just as brown as it was in December.

Everybody I talk to around here says what calves they still have on their cows are already 100 pounds or more behind. The sale barns just about don’t sell pairs at all. They split anything with a calf that’s dried off and learned to walk and sell the mamas as slaughter cows and the calves as peewees. Any cow that doesn’t probe like she’s 5 months on is doomed. One of our primary cow killers has been buying cows and putting them in feedlots until they get space freed up.

Hay? Did you ask about hay supplies for this winter? When you call around what you hear is "there isn’t any." Even the irrigated hay is running less than half of what it should. I watch a couple of circles of alfalfa and I haven’t seen it high enough to hide a fat jackrabbit all year. Once it’s swathed, there isn’t enough humidity to bale the stuff and hope to retain a leaf. It’s nasty. It’s parched.

All over Texas, the weather records for heat and no rain are falling. I saw a report that in June Wichita Falls had 28 days over 100. Amarillo has already set a new record for the number of days over 100 and July isn’t even over. A friend in Central Texas tells me the local sales are running three time normal runs and the farmers are baling their corn.

My favorite story about how sorry things are involved a farmer who was baling a field of weeds and some poor cowman stopped and paid him $50 a bale. They say in South Texas stubble is going for $90 a bale.

Not to mention the wind. Did I mention the damn wind? What do you think the evapotranspiration rate is when you hit 105 degrees and the wind, pardon me, that damn wind, is blowing 30?

Parched, that’s what it is.

And it’s not just here. It’s not just local. I called around a little. At the San Saba sale down in central Texas, Al Johnson said they had 1,400 cows last week, rather than the 300 or 400 they should have. They’ve been running over a thousand for a while now. They expect that will continue for another month.

He says there is no hay except what is shipped in. Calves are running 200 pounds behind their normal size for the time of year AND coming in a couple months early. I mentioned that in our country some guys think we’re having the fall run now. "This is the fall run times five," said Mr. Johnson.

The good news, such as it is for folks forced to town with herds they’ve built for years and even generations, the cow and bull market has been pretty good despite all the pressure. Calf prices are great, of course. In fact, by the time you figure the packer value of a 5 or 6 year old cow, add in those $1.50 and such calf prices, you’re getting a pretty decent price for pairs. But everybody expects that when the rains come, replacement costs will be prohibitive.

One fellow I talked to said his auction operator had told him that if he sold his "cows for a $1,000 now, they’ll cost $2,000 to replace." So people are holding their cattle as long as they can, but with the weather outlook for grass and the price outlook for grain, who knows how smart that is, either?

Everybody saw the cattle inventory. They see cow numbers down another 1% and they see replacement heifers down 5% from last year. June’s feedyard placements were high enough to shock everybody and that was just June. It hasn’t rained since then, either, and feedyards and backgrounding yards around here are getting cows—some placed by cow killers who’ve run out of space—and lightweight cattle whose owners hope they can turn them out after the rain.

Who knows? The rains may not come next year either. The old timers who remember the 50s around Texas remember year after year of this sort of nonsense. For those of you with feed, the bad luck hereabouts would seem to pose something of an opportunity. These sale barns have been seeing a lot of good, young cows headed to the plants. They, and the heifers that might otherwise have been retained, won’t be around to produce calves next year or the year after.

The last effort from these quarters generated a couple of well-deserved reprimands. I couldn’t agree more about the price of land being inflated by non-cow demand. Land, especially land in pretty places, has never been priced by production value alone. It’s always overpriced.

I’m 350 miles from Dallas, but if I die tomorrow, some Dallas guy would probably buy this place from my kids. He would buy it for the same reason the Dallas guy across the creek from me owns his place, which would be hunting. Either that, or a neighbor expanding. Still, the Willie Nelson lobby would use my absence as more statistical evidence that the packers need to be whipped like bad mules because “another small producer has been forced out of business.”

My argument, the one I sought to forward by suggesting land price inflation suggests something other than cheap cattle is involved in consolidation, is with that WORC-Willie Nelson faction, well-meaning folks who misuse the statistics in simplistic arguments supporting policies that might do more harm than good; with those who claim that the rise of Ted Turner’s buffalo ranches represents traditional producers being “run out” and then jump from that faulty premise to demand we put more paperwork burden on packers in the false assumption that will make them pay enough for cattle to keep Ted Turner and those Dallas hunter-investors at bay.

If you don’t understand the problem, you run the risk of chasing bogeymen. I don’t think Willie understands.

Much of the industry consolidation we’ve seen the last 80 years or so is no more “the big getting bigger” than the little getting out. It’s a matter of math. Presume that in 1990, you had five herds in the country. Two had 25 cows each, one had 50, another had 100 and the fifth had 1,000 head. The average herd size is 240 head.

Probably, only one of those producers is a full-time rancher whose livelihood depends on cattle prices and beef demand. The others have something else going on.

Now assume that the two smaller guys decide to grow ethanol or poultry houses or suburbs instead of cows. Come 2000, the “government-must-help” lobby will argue that 40% of cattle producers have been “driven out of business” and the average herd size has increased by 60% to 383 head. Consolidation!

Those are mathematical truisms, but hardly proof, or even evidence, that putting more paperwork in front of beef processors will change anything. In fact, history shows us that the more paperwork we require of processors, the fewer processors we get. And, obviously, the wider the farm-wholesale spread.

Now, I would like to live in a world where cattle are so profitable that Ted Turner and his fellow magnate can’t afford to collect ranches the way they collect jewelry or pretty cars. But I can hardly imagine what cattle prices that would take, or who would buy beef at those prices.

As I’ve said before, the epiphany for me on this came when I drove a visitor along the bus route I rode when I was in school. These were more than statistics. I knew these people. I knew why they left and where they and their kids went. As we passed empty house after empty house, I realized that none of the missing farm families had “gone broke.”

They had died. They had sold out for inflated land prices and retired. They had tried farming a few years after their folks died and then realized their town job was a much better deal. Their land had been absorbed into other farms. There are exceptions, but by and large, producers are not being forced off the land. They’re being lured off.

I’d like for somebody to correct me. I don’t really like the future these trends portend. I think small farms have a social value beyond their economic value. But I don’t think we’ll ever get cattle prices high enough to stop this consolidation. The higher they go, the more the better guys can pay to get bigger; the lower prices go, the less incentive the rest of us have to hang on.

If we were some other business—like meat packing—we would recognize it as “buying market share” during good times and bad. I don’t like it any more than Willie Nelson. (Probably less, my senses being a little less blunted, if you get my drift.)But if I were inclined to ask the government to stop it, I’d look at policies that would actually help. Europe is full of regulations that sacrifice economic choice and efficiency to keep small operations viable. The GIPSA rule isn’t going to do that. Not for cattle, anyway.

Packers are not the problem. “Captive supplies” are not the problem. Competing meats are the problem. A bad economy is the problem. Weak exports are the problem. Putting more restraints on big feeders and beef packers—the industry’s marketing arm--won’t help.

Again, my main argument is that the way you deal with the challenge of competition is not to demand government interference. It’s to get better at what you do. Find ways to adapt to the world the way it is. Make better beef. Or make cheaper beef. Or find better ways to sell your stuff. Chasing bogymen-packers in the belief anything that hurts them will help you is pure folly.